Washington Construction Law Blog

So you wrap up a lawsuit and enter into a settlement agreement in which one side agrees to pay money to the other side in exchange for mutual releases and other typical settlement clauses.

But then the party required to make the payment, well, doesn't pay.  What happens to the claims that were released?  Do they come back to life?  Or does the failure to pay merely give the wronged party to right to sue to enforce the payment obligation in the settlement agreement?

Division 1 holds in this case that, unless clearly stated otherwise, a settlement agreement is merely an "executory" contract rather than a "substituted" contract -- and therefore the wronged party can revive its released claim and go back to court. 

Copy of decision also available here Download file

In the midst of a dispute over the proper sum to pay, one side tendered a check with "final payment" written in the notation line.  The other side modified the notation to make the payment applicable only to one particular part of the dispute & then cashed the check.

The Court of Appeals held the act of cashing the check extinguished the party's claim for the remaining balance.  Addressing the altered notation, the court said it had "no effect" because it was a "unilateral modification not communicated" to the other side.

Copy of decision also available here Download file

If you write payment terms for purchase orders or subcontracts, this case will make you sit up and take notice.

Obayashi hired a sub to haul material from its worksite at the Sound Transit Beacon Hill project.  Payment was to be made on an hourly rate.  The purchase order, after stating the hourly rate, stated that the sub was to use a truck "with the ability to haul 9 full scoops of semi wet material" at all times.

Obayashi took that language to mean that the sub actually had to haul 9 scoops per load.  Based on evidence the sub failed to do so, Obayashi refused to pay the final $22,000 billed by the sub.

But the Court of Appeals rejected this contract interpretation, holding instead that the hourly rate did not depend on actual hauling of 9 scoops per load -- only (at most) that the sub furnish a truck with the "ability" to do so.  The sub apparently complied with that condition, based on evidence that some hauls did indeed contain 9 scoops.

The fact the Obayashi signed a stream of truck tickets acknowledging the quantities removed did help either.

Copy of decision also available here Download file

It is often the case that funds paid by a project owner to a general contractor -- while intended for use on the project to pay off subcontractor liens -- get drained off to other purposes, leaving the owner in the position of having to pay twice.  This important new case will give owners a significant newly recognized remedy in efforts to chase down the misapplied proceeds.  Division 1 held that:

• Progress payments made by a project owner to a general contractor constitute "trust funds" for the benefit of subcontractors, when the agreement between owner and contractor is based on AIA A201 (1997)
• If the bank that finances the operations of the general contractor has "knowledge sufficient to require inquiry" whether the funds deposited by its borrower were trust funds, that bank may be liable for misappropriating trust funds when it uses the proceeds to pay down the borrower's debt to the bank,
• The bank may also be sued for conversion based on essentially the same facts, but is not liable for any potential violation of the Consumer Protection Act, and
• The bank may avoid liability if it were established that the trust funds were "properly accounted for" i.e., that the seizure of the funds, from an accounting standpoint, did not cause injury to the owners. 

For aficionados of prevailing wage law, today's D.C. Circuit case will be must reading. The main issue is jurisdictional -- whether a contractor who is subject to Davis-Bacon rules has the right (via the Administrative Procedure Act) to challenge the Labor Secretary's job category and wage rate determinations under the so-called "conformance" regulations. The Court of Appeals said that jurisdiction exists -- but then went to the merits and denied the contractor's complaint.

The prevailing wage dispute at issue in this case to be heard this term by the Supreme Court is whether truck drivers who delivered fill material to the location where it was used in the Sea-Tac Third Runway Embankment Project were entitled to local prevailing wages under RCW 39.12.020 because they thereby participated in the "incorporation" of the delivered materials into the project. See WAC 296-127-018(2)(a). The Court of Appeals said no, and thereby relieved the dirt subcontractors from having to pay the prevailing wage rates.

Those who dare to contract on an oral, cost-plus basis are subject to the rules made by the court to determine exactly what costs are included -- and excluded -- from the definition of reimbursable cost. And in Washington, despite the unfortunate frequency with which owners and contractors resort to this informal process, this is precious little law on the issue.